BEYOND THE NUMBERS
Stopping cost-sharing reduction (CSR) payments to insurers under the Affordable Care Act (ACA), as President Trump has repeatedly threatened, would drive up federal marketplace subsidy costs, raise premiums, cause more insurers to withdraw from the marketplaces, and increase the number of uninsured next year, the Congressional Budget Office (CBO) found today. Key findings include:
- Stopping CSR payments would raise federal budget deficits by $6 billion in 2018 and $194 billion over the next ten years, relative to current law, due to increased costs for the ACA’s premium tax credits for low- and moderate-income people to offset their rising premiums (see below).
- Marketplace premiums for “silver-level” plans would rise by 20 percent, on average, in 2018. Premiums for such plans would be 25 percent higher in 2020 and thereafter, relative to current law.
- Marketplace insurers in some states would withdraw from or not enter the marketplaces in 2018. As a result, the share of the nation’s population living in areas with no marketplace insurers would rise to 5 percent in 2018, up from less than 0.5 percent under current law.
- The number of uninsured would rise by 1 million in 2018, relative to current law.
Under the ACA, about 6 million low- and moderate-income people enrolled through the marketplaces are eligible for CSRs, which lower their deductibles and other out-of-pocket costs. The ACA requires the federal government to reimburse insurers for the cost, which CBO estimates at about $7 billion a year. To qualify for CSRs, a person must have income up to 250 percent of the poverty line (or about $60,000 for a family of four) and enroll in a silver marketplace plan. On average, the CSRs reduce people’s out-of-pocket costs by roughly $1,100 per person.
Under the ACA, as we’ve explained, insurers are entitled to these CSR payments, just as eligible people are entitled to the lower cost-sharing charges they provide. Moreover, insurers don’t profit from CSRs and the ACA requires insurers to provide them to enrollees even if the federal payments stop. That means that enrollees entitled to CSRs could still access plans with lower deductibles and other cost sharing, so long as a marketplace plan is available where they live. But insurers wouldn’t be compensated for providing CSRs (though they’d likely be able to seek retrospective relief in the U.S. Court of Federal Claims and would almost certainly prevail.)
As both CBO and the Kaiser Family Foundation expect, if the CSR payments stop, marketplace insurers would likely cover the upfront cost of providing CSRs by raising their premiums just for silver plans by about one-fifth in 2018. That’s exactly what many marketplace insurers plan to do, according to preliminary premium rate filings in a number of states. (CBO assumes that state insurance commissioners would direct marketplace insurers to increase premiums just for silver plans, rather than for all the plans they offer.)
Other insurers would likely withdraw from the marketplaces altogether, leaving more consumers in counties with no marketplace plans, CBO finds. As a result, 1 million more people would be uninsured in 2018 than under current law. If the CSR payments stopped after insurers had already finalized premiums for 2018, insurers would suffer significant financial losses and even more insurers would leave the marketplaces, CBO notes.
The ACA’s premium tax credits are tied to the premiums for silver plans, so those credits would rise if CSR payments stop, shielding most marketplace consumers from much of the premium increases. But people with incomes too high to qualify for the credits would bear the brunt of the higher premiums. They would have to buy coverage outside the marketplaces or enroll in less generous bronze or more generous gold marketplace plans, CBO finds.
The increased federal costs for premium tax credits (due to higher silver-level premiums) would more than offset the savings from stopping the CSR payments, CBO finds — particularly for people with somewhat higher incomes who either don’t qualify for CSRs or receive only modest assistance. In fact, CBO eventually expects a greater share of people in that income range (between 200 and 400 percent of the federal poverty line) to buy marketplace coverage than under current law, due to the larger premium credits, which would then reduce the number of uninsured over time. As a result, CBO expects that overall federal marketplace subsidy costs would grow significantly over both the short and long term, raising federal deficits. That’s consistent with earlier Kaiser Family Foundation estimates.
In short, CBO found that stopping the CSR payments would immediately undercut the individual market’s continued progress towards financial health and stability. The Trump Administration should thus eliminate the uncertainty and pledge to continue the payments on a permanent basis.